IDBI Bank losses may stifle its stock performance

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26 Aug, 2025 12:21

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Beena Parmar

Moneycontrol Bureau

Demonetisation, capital constraints and spike in bad loans have hit the government-owned IDBI Bank hard as its net loss widened to Rs 2255 crore in the October to December period.

This is likely to impact IDBI Bank’s stock, which surged about 43 percent in the last one year, given that the asset quality issues and weak credit growth outlook are likely to weigh heavily on the bank.

Bad loans of IDBI bank, in which the government aims to reduce stake, nearly doubled from the year ago period.

The bank’s gross non-performing assets (NPA) in the third quarter ending December 31, 2016 jumped to 15.16 percent (Rs 35,245 crore) of gross advances as compared to 13.05 percent (Rs 30,134 crore) as on September end, 2016. The gross NPAs sharply increased from the year ago period which was at 8.94 percent (Rs 19615 crore).

Net NPAs also deteriorated to 9.61 percent (Rs 20,949 crore) from 8.32 percent (Rs 18195 crore) in September and 4.60 percent (Rs 9613 crore) in December last year.

During the period, the Bank's provisions towards these bad loans jumped to Rs 2357 crore from Rs 1715 crore a year earlier.

IDBI bank will also need to raise capital to meet Basel III banking rules that will be fully implemented by March 2019. This could mean a slowdown in lending growth.

A senior executive with IDBI bank said, “We are talking to merchant bankers to raise capital and simultaneously working on resolution of bad assets. Since, we will require to conserve capital, it will impact our credit growth pace.”

The capital adequacy ratio (CRAR) of IDBI Bank has deteriorated by 35 bps from the previous quarter to 11.29 percent.

It’s tier-I capital at 7.24 percent, lower than the RBI’s regulatory requirement of 8.25 percent by March 2017.

Further, the government’s capital infusion plan of Rs 10,000 crore in public sector banks based on a bank’s performance will clearly be insufficient for the bank.

Slowing business

While asset quality and capital continue to remain a pain point, the effects of demonetisation were shown on the business front as the bank witnessed a more than 45 per cent decline in net interest income (NII) to Rs 850 crore (from Rs 1555 crore) for the December quarter. NII is the core banking income which is the difference between interest on loans given and paid on deposits.

Non-interest income or the other income declined 4.7 percent to Rs 551 crore from Rs 578 crore in the same period last year.

Moreover, the bank has also seen a marginal growth in its retail loan book, which has been a savings grace for the other banks amid slower economic growth.

It remains to be seen how the bank attempts to revive itself amid challenges in the banking sector.

IDBI bank’s stock on Tuesday closed at Rs 81.75 per share and after surging about one percent in the early trades, the shares were trading almost flat on Wednesday on the Bombay Stock Exchange.